It may not come as a surprise to hear that Americans are drinking more coffee than ever before. In fact, 62% enjoy a cup of joe every day. With so many of us enjoying our daily fix, it stands to reason that coffee has some level of built-in demand.
That’s worthwhile information for any entrepreneur looking to open a coffee shop. Still, profitability is tightly connected to things like location, coffee quality, and consumer taste and income. This all begs one obvious question: How much does it cost to open a coffee shop? Coming up with an accurate estimate depends on many different factors.
We analyzed the most common coffee shop startup costs to help bring things into focus.
Coffee Shop Startup Costs
One of the biggest factors driving startup costs is whether you’re opening a brand-new shop, purchasing an existing coffee house, or investing in a franchise. To buy into a Dunkin’ franchise, for example, you must have at least $250,000 in liquid assets but the total investment can stretch to over $1.5 million. Meanwhile, opening your own shop with seating could prove more economical, but depending on your area and the size of your shop, you can still expect to invest several thousand to a few hundreds of thousands of dollars.
That’s a wide range, mainly because every market and coffee shop is different. Generally speaking, you can expect to run into the following costs when opening up shop.
One of your first action items is deciding which type of business entity makes the most sense for your coffee shop. Structuring it as an LLC, sole proprietorship, or C-corp, for example, will translate to different legal and tax responsibilities. There are also different costs associated with each one.
Once you’ve done this and have applied for an employer identification number (EIN), which is free through the IRS website, you’ll need to register the business with your state. Your county and city may also have additional rules around registering your business, so be sure to clarify what the process is like in your specific town.
From there, you’ll need to secure whichever permits and licenses are necessary to open a coffee shop in your area. This is an especially important detail if you plan on serving food. You’ll also want to see if you’ll need any building, zoning, or land-use permits. All of these things cost money, but they’re necessary to keep your business compliant. Consulting with your local secretary of state’s office or chamber of commerce can help you determine which licenses and permits you’ll need.
Commercial Space for Your Coffee Shop
When considering the cost to open a coffee shop, your physical location will likely be one of your biggest expenses. As a general rule of thumb, it’s best to keep your rent at or below 15% of your projected monthly sales. It’s a detail that highlights just how important it is to create a well-researched business plan. Doing so can help you more accurately estimate your startup costs from the very beginning.
With that being said, your rent will have everything to do with the size of the space and the city you’re opening in. While renting an 1,100-square-foot space in Boston may cost $2,500 per month, the same square footage in a rural area may be significantly cheaper. No matter what, you’ll also need to account for utilities like water, gas, and electric. Most coffee shops also double as workspaces for patrons, so kicking in for high-speed WiFi isn’t a bad idea, either.
You’ll need the right equipment to get a new coffee shop up and running. Coffee quality is everything here—and it all begins with the beans. Connecting with a top-notch coffee supplier is key. You can lean on your business plan to figure out how much you’ll typically need to order on a monthly basis, then project your expenses from there.
It goes without saying that you’ll also need to purchase in-house equipment like a commercial-grade espresso machine. Prices can easily range anywhere from $700 to over $11,000. Meanwhile, restaurant-quality coffee makers can cost hundreds.
Coffee roasters are another essential expense. These come in a variety of sizes, so you may not need the biggest (and most expensive) model, but you can expect to spend at least $15,000 here. It’s wise to add a water filtration system to the list, which can make or break the way your coffee tastes.
Other equipment expenses will be unique to your coffee shop’s needs. Incorporating, say, a gourmet drip brewer may be important to you. If you’re serving food, refrigeration and kitchen equipment is a must. Other easy-to-overlook costs include:
- Disposable cups and lids
- Dine-in cups, plates, and cutlery
- Coffee sleeves
- Stirrers and napkins
- Sugar packets, milk, and cream
- Furniture and artwork (atmosphere is essential for coffee shops)
- Point of sale system
Starting a small business is associated with some degree of risk, which is why business insurance is essential. Some types of coverage are legally required. If you have employees, you’ll need unemployment insurance and workers compensation coverage. Disability insurance may also be non-negotiable, depending on your state.
No one can predict exactly what the future has in store, but some types of insurance can offer protection if your coffee shop is involved in litigation. The same goes for theft, fire, or a covered weather event that causes damage. You’ll pay for whatever coverage you choose, but it could be well worth it if you ever need to file a claim.
Some common business insurance policies include general liability insurance, which can cost about $400 to $600 per year, and commercial property insurance, which runs about $1,000 to $2,000 per year. This number will fluctuate depending on several factors, including where your coffee shop is located, how much coverage you need, and more, but be sure to factor these costs into your startup expenses.
Advertising and Marketing
The only way for your new coffee shop to make money is to get customers in the door. Developing a comprehensive marketing strategy—and putting it to use—is the best way to spread the word, create brand awareness, and cultivate a loyal customer base.
As for the cost, it’s something that should ideally be outlined in your business plan. For businesses with revenues under $5 million (and net profit margins of 10% to 12%), the Small Business Administration suggests earmarking 7% to 8% of gross revenues for advertising and marketing.
Your marketing channels might include everything from radio and TV to social media and content marketing. Developing a customer loyalty program can also help you stay competitive and give you a leg up over other local coffee shops.
Chances are you’re going to bring baristas and cashiers onto your team. You may even be thinking about hiring a manager to keep things running smoothly when you aren’t at your coffee shop. Employee wages, whether they’re paid hourly or salaried, should come into play when figuring out your startup costs.
As a general rule, 40% to 80% of your business revenue can be put toward paying your employees. This includes benefits, taxes, overtime, paid time off, and any expected reimbursements you plan on paying to your employees.
How to Get Financing to Open a Coffee Shop
Once you have a ballpark idea of your coffee shop startup costs, it’s time to start thinking about how you’ll generate this capital. You may decide to fund part of the venture with your own savings or lean partially on outside investors.
While many small business loans have a time-in-business requirement—making them tricky for a new coffee shop—equipment loans work a little differently. They’re particularly well-suited for entrepreneurs who need machinery to get rolling. Remember all that pricey coffee equipment we mentioned earlier? An equipment loan can help you get what you need even if you’re a new business.
They essentially use the equipment you’re buying as collateral for the loan. As such, most lenders consider them less risky, so it’s generally easier to get approved when compared to an unsecured business loan.
The Bottom Line
Bringing a new coffee shop to life is a business venture like any other, and startup costs simply come with the territory. The right business plan is your best weapon for pinpointing your projected expenses. Your rent and equipment costs are easily the steepest upfront fees, but going into it with eyes wide open can help you plan ahead and avoid unwelcome financial surprises.
- Ncausa.org. “2020 National Coffee Data Trends report”
- Firstresearch.com. “Coffee Shops Industry Profile”
- Dunkinfranchising.com. “Online Application Process”
- Roastycoffee.com. “Best Commercial Espresso Machine”
- Coffee-channel.com “8 Best Commercial Coffee Makers 2020–Top Picks, Reviews & Guide”
- SBA.gov. “How to Set a Marketing Budget that Fits Your Business Goals and Provides a High Return on Investment”